How To Pick The IRA That Best Suits Your Needs

Find an IRA that will come with free financial advice (from an advisor that has your best interests in mind).Image via Pexels

There’s no getting around it: You should have an IRA. If your company doesn’t offer any sort of retirement savings plan, an IRA might be your primary retirement savings resource. However, even if you have an employer-matched 401(k), an IRA is another vehicle you can use for retirement savings. First, you have to choose between a Roth or a traditional IRA. For a Roth IRA, you don’t get a tax deduction when you put money in, but you get to withdraw your money (after age 59 and a half) tax-free. On the flip side, you can deduct your traditional IRA contribution on your taxes now, but you’ll have to pay taxes when you withdraw your money in retirement.

It’s one thing to recognize that you need an IRA, and an entirely different thing to go about opening up an account, making a contribution, and investing your money. You should first know that you can contribute up to $5,500 a year to your IRA. You can also make your 2017 contribution until April 2018. So if you don’t have money saved for a contribution yet, don’t worry. You still have time.

But first, you’re going to need to open an IRA with a bank or lender you feel comfortable with. Here’s what you need to look for:

1. Pick a company you trust. Your options are going to be banks, mutual fund companies, insurance companies, or brokerage firms. Each option has pros and cons, and long-term implications. Someone looking for guaranteed income might opt for an IRA with an annuity, which you can find with an insurance company. On the other hand, if you’re looking for investment flexibility, you might want to go with a brokerage firm. Brokerage accounts will offer plenty of investments that are sold without commission or sales charges.

2. Consider how you want to invest your money. Do you want to buy ETFs and mutual funds? Do you want to pay someone to come up with an investment plan for you? If you’re after investments that don’t come with fees or commissions, choosing a brokerage account may be your best bet.

3. Think about whether you’d want a CD. Banks that offer IRAs often promote CDs, or certificates of deposits. The advantage of CDs is that they’re very safe. The disadvantage is that the return on investment won’t be as good. Investing in the market may yield a 6% return while a CD may only yield a 1% return. A lot of this choice has to do with risk tolerance and when you’re going to retire. If you’re retiring in 30 years, you can be aggressive. If you’re retiring in five years, it may behoove you to play it safe.

4. Decide if you want annuities. If you’re interested in annuities, you might consider an insurance company-based IRA. Annuities typically aren’t recommended for IRAs. Why? Because a big advantage of annuities is that your money is tax-deferred—and with your IRA that may already be the case. However, an annuity provides guaranteed income, so sometimes those close to retirement will choose that route.

5. Consider a lender that will offer a free meeting with financial advisors. As a perk, some lenders encourage their clients to meet with their expert advisors at no additional cost. You need to be careful, though. Some of those advisors are pushing specific stocks or products, while others are genuinely giving you personal, helpful financial advice. Needless to say, you want the latter.

6. Be aware of fund and management fees. Opening an account isn't always free. But some places are charging more than others, and there’s a host of things you can be charged for. In addition to transfer fees there are trading fees, advisor fees, and fund management fees (depending on what you want to invest in). The good news is most of these fees are avoidable, as long as your account and investments are well-researched and you pay attention to the fine print. Don’t hesitate to ask questions at every step when you’re opening your account.

I am a personal finance writer, editor and digital content consultant. I love to find new ways to budget and side hustle, whether through my own trial and error or by interviewing other people. My work has been featured on The Atlantic, Refinery29, LA Weekly, and Marie Clair...